Consumer Credit Sees Largest Increase in 2 Years

Consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by a surge in non-revolving credit such as college loans and auto financing.

Credit rose $2.1 billion after falling a revised $4.9 billion drop in August that was more than the previously estimated, the Federal Reserve said today in Washington. Economists projected a $3 billion decrease, according to the median estimate in a Bloomberg News survey. Credit-card debt declined for the 25th straight month, while non-revolving loans rose by the most since August 2007.

Cheaper borrowing costs may be encouraging Americans to purchase big-ticket items such as new cars. The recovery may get a bigger lift from consumer spending, which accounts for about 70 percent of the economy, when companies step up the pace of hiring.

“This bodes well for the future,” Chris Rupkey, chief financial analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before today’s report. “Consumers are increasingly confident that the economic recovery will continue.”

Estimates in the Bloomberg survey of 35 economists ranged from decreases of $200 million to $14 billion.

Earlier today, the Labor Department said the economy added 151,000 jobs in October and the unemployment rate held at 9.6 percent.

The dollar climbed and Treasury securities declined after the reports. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 2.53 percent at 3:12 p.m. in New York from 2.49 percent late yesterday. The dollar strengthened to $1.4047 per euro from $1.4207. The Standard & Poor’s 500 Index increased less than 0.1 percent to 1,221.67.

Non-Revolving Debt

Non-revolving debt jumped $10.4 billion in September. Federal government non-revolving loans, such as those for student loans, increased an unadjusted $27 billion in September.

Auto sales in September increased to a seasonally adjusted 11.73 million annual rate, according to industry statistics. Ford Motor Co., the second largest automaker, reported a 41 percent increase in car and truck sales for the month.

The pace in October improved further. Industrywide, light vehicles last month sold at a 12.3 million pace, the best performance without a government incentive program since September 2008.

Revolving debt, which includes credit cards, dropped $8.3 billion in September, the most since December 2009, according to the Fed. The report doesn’t track debt secured by real estate, such as home equity lines of credit.

Card Delinquencies

In a sign that Americans are reducing debt and building savings, past-due credit-card payments declined in the second quarter to the lowest level since 2001. Card delinquencies fell to 3.62 percent from 3.88 percent, according to figures last month from the American Bankers Association in Washington.

The ABA’s quarterly report uses data from banks on loans 30 days or more past due and covers eight categories, including auto loans, credit cards and home-equity loans.

A drop in U.S. credit-card late payments this year has helped Capital One Financial Corp. boost profit even as consumers reduced balances. The McLean, Virginia-based Capital One said Oct. 18 that net income rose to $803 million in the third quarter from $394 million in the same period last year.

American Express Co., the biggest credit-card issuer by purchases, announced on Oct. 22 that its third-quarter profit increased 70 percent as fewer overdue payments allowed the company to trim loss reserves.

The amount of bad credit card loans written off as uncollectible in the U.S. fell to 8.9 percent at an annualized rate in September, according to Moody’s data service.

Consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by a surge in non-revolving credit such as college loans and auto financing.
Credit rose $2.1 billion after falling a revised $4.9 billion drop in August that was more than...